ITAR and DFARS: What Electronics Procurement and Manufacturing Need to Know

The electronics industry is a notoriously highly regulated sector, as you would expect, given its importance in our daily lives. This is particularly true when it comes to defense and aerospace applications. Two key regulations, the International Traffic in Arms Regulations (ITAR) and the Defense Federal Acquisition Regulation Supplement (DFARS), govern the export, import, and use of defense-related technologies; non-compliance with these regulations can land electronics manufacturers in hot water, with severe legal and financial consequences.

If you are a contract manufacturer, design firm, or OEM looking for a comprehensive overview of these two crucial regulations, you are in the right place. Read on to find out about the requirements, challenges, and best practices that will help you ensure compliance and mitigate risks, protect your business operations, and contribute to national security. 

Understanding ITAR and DFARS

ITAR: Safeguarding Defense Technologies

ITAR is a set of U.S. government regulations administered by the State Department that controls the export and import of defense articles and services and related technical data, including a wide range of electronic components and systems used in military and aerospace applications.

Key ITAR requirements include:

• Obtaining necessary export licenses for the export of controlled items. For example, exporting specific types of encryption algorithms, especially those with strong cryptographic capabilities or specialized microprocessors, such as radiation-hardened microprocessors, to a foreign country would require a license.
• Controlling the dissemination of technical data that could contribute to the development of defense articles; sharing technical data about a controlled item with a foreign national, even if they are a U.S. citizen, could be considered a deemed export and require a license. 
• Complying with ITAR requirements when sharing technical data with foreign nationals, even within the U.S.
• Maintaining accurate records of export activities and technical data transfers. 

DFARS: Ensuring Defense Supply Chain Security

DFARS, on the other hand, is a set of regulations issued by the U.S. Department of Defense (DoD) that provides additional guidelines and requirements for defense acquisitions, including contracts, procurement, and subcontracting.

Key DFARS requirements include:

• Implementing solid cybersecurity measures to protect Controlled Unclassified Information (CUI) and other sensitive data, including specific measures like multi-factor authentication, encryption, and regular security audits; following the NIST SP 800-171 Cybersecurity Framework, which provides a set of standards, guidelines, and best practices to manage cyber risk; and aligning with ISO/IEC 27001, the international standard that provides a model for establishing, implementing, operating, monitoring, reviewing, maintaining, and improving Information Security Management Systems. 
• Protecting intellectual property rights and complying with data rights requirements.
• Ensuring the security and integrity of the supply chain, including supplier screening and monitoring. This involves conducting thorough due diligence on suppliers, verifying their security practices, and making sure they are not located in countries of concern. 
• Meeting small businesses’ subcontracting goals. Actively seeking out small businesses to fulfill subcontract requirements and providing them with the necessary support to succeed. 
• Adhering to contract award and administration processes, including cost and pricing data requirements. 
• Maintaining accurate records and providing required reports to the DoD. 

Compliance Challenges for Electronics Businesses

Electronics businesses face a tough regulatory labyrinth when dealing with ITAR and DFARS. It can be daunting for new companies in the space, but it is not insurmountable. Here are some of the most common hurdles: 

ITAR and DFARS for Specific Business Roles

Core ITAR Requirements for OEMs

OEMs involved in the defense and aerospace industry must adhere to a range of ITAR regulations, which include:

• Accurately classifying products, components, and technical data to determine if they are subject to ITAR controls. 
• Obtaining necessary export licenses from the State Department for the export of controlled items and technical data, which involves completing detailed export license applications and providing accurate end-user statements. 
• Maintaining accurate records of all export activities, including export licenses, shipping documents, and technical data transfers—crucial for compliance audits and potential investigations later down the line.
• Implementing cybersecurity measures to protect ITAR-controlled information from unauthorized access, theft, or loss; might include securing networks, systems, and data, as well as conducting regular security assessments. 

DFARS for Contract Manufacturers

Contract manufacturers supplying components or systems to the DoD or its contractors must comply with specific DFARS clauses, which include:

• Implementing cybersecurity measures to protect CUI and other sensitive data, which often involves adhering to the NIST Cybersecurity Framework and other industry standards.
• Conducting thorough due diligence on suppliers to assess their security practices and compliance with ITAR and DFARS. This process will involve verifying supplier locations, conducting audits, and implementing supplier security agreements.
• Complying with DFARS subcontracting plans, which may include subcontracting goals for small businesses. 
• Understanding and complying with DFARS data rights clauses, which govern ownership and use of technical data and software. 

Design Firms and ITAR/DFARS

Design firms involved in defense and aerospace projects must also be aware of both ITAR and DFARS regulations, which include:

ITAR Implications:

• Controlling the dissemination of technical data to foreign persons, even within the United States. 
• Obtaining export licenses for the export of technical data. 

DFARS Requirements:

• Complying with cybersecurity requirements, including protecting CUI, data rights, and intellectual property. 
• Adhering to data rights clauses, which may limit the use and disclosure of certain technical data. 

Best Practices for ITAR and DFARS Compliance

There are many risks associated with ITAR and DFARS non-compliance. With that in mind, electronics businesses should establish a compliance program that is both effective and robust. A dedicated individual or team should be assigned to oversee compliance efforts with the aim of developing clear and concise policies and procedures for handling controlled items, export controls, cybersecurity, and supply chain security. Regular training sessions should then be conducted to educate—and keep up-to-date—employees’ knowledge of ITAR and DFARS requirements, with a specific emphasis on the importance of compliance and the potential consequences of non-compliance. 

To make sure that effective export controls are in place, businesses need to identify controlled items by conducting thorough reviews of products, components, and technical data to establish whether they are subject to ITAR controls; apply for and obtain the required export licenses from the appropriate government agencies; and maintain accurate records of all export activities, which include export licenses, shipping documents, and end-user statements.

On top of that, it’s essential that suitable cybersecurity measures are in place to protect sensitive information and systems from malicious actors.

• Identify and assess potential risks, such as cyberattacks, data breaches, and unauthorized access.
• Limit access to sensitive information and systems to authorized personnel only.
• Keep both software and hardware up-to-date with the latest security patches and updates.
• Keep employees clued into cybersecurity best practices, including password security, phishing awareness, and social engineering tactics.

Supply chain security is another critical pain point when it comes to ITAR and DFARS compliance. Always conduct thorough due diligence on suppliers; screen and assess each candidate to ensure compliance with necessary standards, including the AS9100D quality management standard and the Cybersecurity Maturity Model Certification framework developed by the DoD; monitor their performance to identify potential security threats and implement rigorous quality control measures to prevent the introduction of counterfeit or defective components. It may also be worth considering blockchain technology solutions, which provide immutable data regarding a component’s journey through the supply chain from provenance.

And do not forget that meeting small business subcontracting goals is a key requirement for defense contractors; businesses must identify and create a network of qualified small business subcontractors that meet the technical and security requirements; maintain an accurate record of subcontracting expenditures to ensure compliance with small business utilization goals; and document the steps taken to identify, solicit, and award contracts to small businesses. 

Understanding and adhering to ITAR and DFARS regulations is one of the most important elements that electronics providers must consider when operating in the defense and aerospace industries; solid compliance programs can help companies mitigate risks, protect their reputation, and maintain their ability to conduct business with the U.S. government. But it’s important to note that ITAR and DFARS are one, complex, and two, constantly changing. To stay up-to-date with the latest requirements, it’s worth consulting with legal and export control experts—professional guidance goes a long way toward taking all the necessary steps to comply with these regulations. 

And remember, proactive compliance is essential. Invest in a strong program to protect your company’s future and contribute to the nation’s security. 

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